Moscow (Platts)--14Dec2012/530 am EST/1030 GMT

Russia is to submit to the EU an updated draft agreement on transnational gas pipelines during the Russia-EU summit scheduled for December 21, Russia's energy minister Alexander Novak said Friday.

"The updated [draft] agreement basically features only two major facilities -- the Nord Stream [gas pipeline] with the OPAL and NEL offshoots, and the South Stream [gas pipeline]," Novak said at a media briefing.

Should the agreement be adopted by the EU, it will become the basis for exempting the pipelines from the so-called third energy package, Novak said.

Russia submitted to the EU energy commission the previous draft agreement on transnational energy facilities in early 2012, Novak said.

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Russia wants the EU to give the three pipelines the status of the so-called TEN-E, or Trans-European Energy Network, which would exempt them from the third package rules on third-party access and the separation of gas trading from gas network operatorship.

But the EU has proved reluctant to give this endorsement as it wants to prioritize projects that bring in non-Russian gas in order to diversify its supplies.

Last week, Russia held a groundbreaking ceremony to mark the start of construction of the Eur16 billion ($21 billion) South Stream gas pipeline with a capacity of up to 63 billion cubic meters a year, which is to cross the Black Sea to Bulgaria and run further on through southern Europe.

Russia's state-owned Gazprom is also studying the possibility of building one or two additional lines within the Nord Stream gas pipeline project across the Baltic Sea to northern Europe, which would bring its total capacity up to 110 Bcm/year. The second line of Nord Stream was commissioned in October, boosting the system's total capacity to 55 Bcm/year.

The OPAL and NEL pipelines connect Nord Stream with Europe's gas infrastructure.

TALKS ON UKRAINE TO CONTINUE

So far no progress has been achieved over forming a three-party consortium that would potentially run and modernize Ukraine's gas transportation system, Novak said at the briefing, adding that the issue was discussed at a meeting with EU commissioner Guenther Oettinger earlier this week.

"The EU commission has offered its assistance in ... discussing such a consortium," Novak said.

In 2002, an agreement was reached on forming the consortium, Novak said, adding that the actual work has not started as "the Ukrainian party has not initiated its part of the process."

"Russia is ready to consider modernization of Ukraine's gas system, should the Ukrainian party make such an offer," he said.

Earlier this week, Russian media reported that President Vladimir Putin and his Ukrainian counterpart Viktor Yanukovych may meet Tuesday to discuss key energy issues.

The Russian and Ukrainian governments are in talks to create a consortium that would control the transportation unit of Ukraine's gas system, with Gazprom holding a stake in the joint venture.

Ukraine has suggested a trilateral joint venture, which would also include a European company or companies.

By creating the gas joint venture, Kiev hopes to reach an agreement with Gazprom to secure a lower price for Russian gas supplies to Ukraine.

However, so far Moscow and Kiev have been unable to reach an agreement over the value of the facilities.

The gas infrastructure network, widely regarded in Ukraine as strategically important assets, earns about $2 billion a year from transporting up to 110 Bcm of Russian gas to European markets.

--Dina Khrennikova, dina_khrennikova@platts.com
--Edited by Jonathan Fox, jonathan_fox@platts.com

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